Obama's Call for Title II Reclassification Forces Rulemaking Delay

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By Lydia Beyoud

Nov. 10 — An announcement by President Barack Obama asking the Federal Communications Commission Nov. 10 to reclassify broadband Internet services under the common carrier rules of Title II of the Communications Act has brought into question the agency's reported “hybrid” approach to finalizing its open Internet proceeding.

“The time has come for the FCC to recognize that broadband service is of the same importance and must carry the same obligations as so many of the other vital services do,” the president said in an official statement and accompanying video address.

The White House's approach appeared to rely on so-called hybrid regulation of the Internet involving reclassification of broadband Internet as a utility service under Title II, while also invoking the FCC's forbearance authority from certain provisions of that regime, such as rate regulation.

The president also called for the rules to encompass mobile broadband services, a proposal that the FCC has hinted at but hasn't explicitly said would be included in its final rules.

“If carefully designed, these rules should not create any undue burden for ISPs, and can have clear, monitored exceptions for reasonable network management and for specialized services such as dedicated, mission-critical networks serving a hospital,” Obama said.

While Title II proponents and opponents quickly fell into their usual camps, industry lawyers and former FCC staffers said the president's proposal—and the FCC's response—raise a number of issues for the agency, industry and Congress.

FCC Takes More Time, Weighs ‘Hybrid.'

In response to the president, FCC Chairman Tom Wheeler said the agency would need more time to examine the legal implications of the various approaches before it, including the president's recommendation.

An FCC spokesman confirmed to Bloomberg BNA that final rules would not be issued before 2015.

The FCC's response also confirmed reports that it has been exploring a hybrid approach to its open Internet rules.

The reported proposal would divide Internet traffic into two camps, regulating broadband as a retail service between ISPs and consumers under a lighter regulatory regime, and applying a more stringent approach to limit paid prioritization deals and other practices on the Internet's “back end,” where ISPs and content companies connect.

“The reclassification and hybrid approaches before us raise substantive legal questions,” Wheeler said in the statement.

“For instance, whether in the context of a hybrid or reclassification approach, Title II brings with it policy issues that run the gamut from privacy to universal service to the ability of federal agencies to protect consumers, as well as legal issues ranging from the ability of Title II to cover mobile services to the concept of applying forbearance on services under Title II.

Independent Agency

Wheeler said Oct. 17 that he and the president saw eye to eye on net neutrality, an issue Obama campaigned on during the 2008 presidential election.

Though the office of FCC chairman is filled by political appointment, the agency is intended to exercise its authority independently of the White House. Some analysts said Obama's announcement marked an unusual step for a president to overtly call on an independent agency to enact specific rules.

“It's fairly unprecedented, because usually communications policy isn't this interesting,” a former FCC staffer and adviser to a previous chairman told Bloomberg BNA.

“This process has been hugely over-politicized,” Lawrence J. Spiwak, president of the Phoenix Center for Advanced Legal and Economic Public Policy Studies, told Bloomberg BNA.

The president's weighing-in on net neutrality isn't entirely unprecedented, Trey Hanbury, a partner with Hogan Lovells LLP's Technology, Media and Telecoms practice, told Bloomberg BNA.

 “What's interesting is not that it was made but after many months Obama now allied himself firmly with those that have embraced a very aggressive reading of the Communications Act to prevent the type of paid prioritization that some companies would like to implement,” Hanbury said. “That's what's novel about it.“

Hanbury cited previous actions under former presidents Bill Clinton and George H. W. Bush on matters related to public indecency, children's programming and television advertising as examples of prior presidential comment on FCC policy-making.

Political Maneuvering

The president's action in making public his desired outcome from the FCC will require Wheeler to figure out a way forward, sources said. Several sources said that could involve an additional public comment period, whether from a further notice of proposed rulemaking or through a public notice at the bureau level.

Spiwak said the Department of Justice or the National Telecommunications and Information Administration should file a legal brief with the FCC detailing how the president believes his proposal should work.

Hanbury, however, questioned whether additional public comment would truly advance the regulatory process.

Another former FCC counselor told Bloomberg BNA that Obama's proposal could be a form of political cover for Wheeler to establish a hybrid regulatory approach for different Internet users.

“Now he can say, ‘I'm not going to go as far as the president wanted me to go' ” in crafting the final rules, the source said. If Wheeler chooses to follow the White House proposal, that could serve to lock the two Democratic FCC commissioners, Mignon Clyburn and Jessica Rosenworcel into supporting Wheeler when the rules come before the full commission for a vote, the source said.

Mounting Pressure

Sources said the additional time the FCC intends to take to further craft its rules could add pressure on the agency from a new, Republican-dominated Congress that is overtly opposed to Title II regulation.

Several sources speculated that while Congress might not be able to do much more than symbolic passage of bills attempting to prevent the FCC from taking that approach, it could delay matters for the agency by holding oversight hearings or attempting to slash the agency's budget.

Too much delay could make it more difficult for Wheeler to defend his policy position in court during his tenure, the former adviser said.

With the uncertainty of a possible Republican president in 2016, and thus a possible Republican-appointed chairman, Wheeler will need to shepherd the rules to a vote and later oral arguments in a circuit court, as analysts say whatever rules the FCC issues will be litigated.

The FCC's 2010 Open Internet rules were struck down in January when the U.S. Court of Appeals for the District of Columbia Circuit said the agency's no-blocking and non-discrimination rules too closely resembled common carrier regulations ( Verizon Commc'ns Inc. v. FCC, D.C. Cir., No. 11-1355, 1/14/14).

In May, the agency issued a notice of proposed rulemaking (NPRM) that would allow paid prioritization deals between ISPs and Internet content providers.

“Getting this in operation and defended as soon as possible would be key to showing that this new strong open Internet policy under the new statutory framework is working and isn't as harmful as some claim that it is,” the former staffer said.

Strong Republican Opposition

President Obama's announcement received attention from the most senior members of Congress. House Speaker John Boehner (R-Ohio) said “Republicans will continue our efforts to stop this misguided scheme to regulate the Internet” in the incoming Congress.

Senate Republican Leader Mitch McConnell (Ky.) said the FCC should reject the president's proposal, stating that Title II regulation would harm the growth of the Internet and the rapid adoption of mobile technology.

The Republican leadership of the House Energy and Commerce Committee said the president's announcement was “the latest in a long line of decisions that reveal this administration simply doesn't know how to grow the economy.”

“One of the few places where investment and innovation have thrived, even in a struggling economy, is the Internet,” full committee Chair Fred Upton (R-Mich.), Communications and Technology Subcommittee Chairman Greg Walden (R-Ore.), and Vice Chairman Bob Latta (R-Ohio) said in a joint statement.

“American companies continue to invest billions of dollars to expand and improve broadband Internet access and online services. Reclassification under Title II threatens our thriving Internet economy and the American jobs it creates,” they said.

In the Senate, John Thune (R-S.D.), the likely next chairman of the Senate Commerce Committee, said the White House proposal “would invite legal and marketplace uncertainty and perpetuate what has needlessly become a politically corrosive policy debate.”

Thune said he supported an open Internet in principle, but that the FCC should achieve its aim without Title II rules.

Republicans from both chambers sent letters to the FCC in May, following the FCC's issuance of its open Internet notice of proposed rulemaking (GN Docket No. 14-28), calling on the commission to reject reclassification and to work with Congress to develop clear statutory authority for its net neutrality rules.

Democrats Call for Swift Adoption

Democratic leader Nancy Pelosi (Calif.) said the president had “affirmed that free and open access to the Internet is a bedrock right of the 21st century.”

Energy and Commerce Committee ranking member Rep. Henry Waxman (D-Calif.) said he supported the president's rules, and called on the FCC to move “expeditiously to complete the rulemaking and establish the bright-line rules against blocking, throttling, and paid prioritization that define a free and open Internet.”

Waxman added that any delay for additional examination of the rules should be short.

Fellow California Democrat Rep. Anna Eshoo, ranking member of the Communications and Technology Subcommittee, endorsed the president's “sound legal approach” to net neutrality, which she said “will continue the success of the Internet.”

The White House proposal generally appeared to fall in line with proposals from both Eshoo and Waxman to structure a “hybrid” open Internet regulatory regime that would combine Title II reclassification with the FCC's forbearance authority to create “light touch” regulations.

Industry Promises Litigation

Obama's announcement was warmly welcomed by public interest groups including Free Press and Public Knowledge, two major proponents of Title II regulation and key organizing forces behind nationwide demonstrations opposing paid prioritization deals.

“FCC Chairman Tom Wheeler and the other commissioners now must abandon convoluted proposals and make clear rules that will protect Internet users and stand up in court,” said Free Press President and CEO Craig Aaron.

Telecom giants AT&T Inc. and Comcast Corp., along with many other telecommunications industry and trade groups, were far less enthusiastic about the announcement, which AT&T's senior executive vice president for legislative affairs, Jim Cicconi, said would completely reverse bipartisan policy in place since the Clinton administration.

“We feel the actions called for by the White House are inconsistent with decades of legal precedent as well as Congressional intent,” said Cicconi, promising legal action if the FCC puts Obama's proposal in place.

Telecommunications lawyer Hanbury said the ongoing debate over the open Internet highlights the fundamental tensions of the issue. “It's not as if all of the debate lines up neatly on one side or another. These are incredibly complex issues that the FCC has to wrestle with,” he said.

“What we do know is the Internet has become this platform for commerce, free expression and civic engagement” and everyone wants to be sure that neither the FCC nor ISPs mess it up, he said.

To contact the reporter on this story: Lydia Beyoud in Washington at lbeyoud@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

Text of the White House statement and video is at http://www.whitehouse.gov/net-neutrality.

Text of the FCC's response is at http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db1110/DOC-330414A1.pdf.